United Kingdom (1997), Development Co-operation Review

Development Co-operation Review: Summary and Conclusions

A new Government dedicated to poverty elimination

British development co-operation policies are undergoing significant change. The new Labour Government elected in May 1997 intends to construct its international development programme around the goal of poverty elimination. It is fully committed to reducing the proportion of people living in extreme poverty in developing countries by one-half by 2015, as set out in DAC's Shaping the 21st Century, and is working to have this basic goal adopted throughout the international development system.

The new Government has appointed a Secretary of State for International Development, who is a member of the Cabinet and responsible directly to the Prime Minister. This gives international development an increased profile, and higher priority, in line with the Government's election manifesto. Another indication that British policies are being broadened was the almost immediate creation by the new Government of the Department for International Development (DFID) [formerly the Overseas Development Administration (ODA)] as an independent ministry for the first time since 1979. The creation of DFID has automatically triggered the creation of a Parliamentary Select Committee on International Development which promises to provide more impetus and depth to Parliamentary oversight of the aid programme in Parliament.

Changing the name of the Overseas Development Administration to the Department for International Development (DFID), indicates that it is no longer only a question of development co-operation; rather, as DFID's name implies, its mandate covers a broader range of development-related policy issues. The United Kingdom has thus introduced a new dynamic into the process for seeking policy coherence in its government structures.
A White Paper on international development has been issued, the first in two decades. A comprehensive spending review is being carried out in DFID and other government departments to try to ensure that all parts of the government will contribute in a more co-ordinated and coherent fashion to the new Government's policies. DFID's Comprehensive Spending Review (CSR) is expected to be completed in mid-1998.

The White Paper

Preparation of the White Paper provided an occasion for a wide debate in Whitehall and civil society in the United Kingdom about international development. The case for the focus on poverty elimination in the White paper is based not only on moral grounds, but on enlightened self-interest. The British Government recognises that the development agenda can best be implemented through partnerships with developing countries. Where partnership is impossible, solidarity will be sought through non-governmental organisations (NGOs). The new government also emphasizes links between national and international agendas and intends to use international influence and multilateral programmes to mobilise stronger support for poverty eradication.

The White Paper has announced that no more applications will be accepted for assistance from the Aid and Trade Provision (ATP), and this scheme will be closed.

The new British international development programme has a clear focus on the elimination of extreme poverty, which is not just about income. The pro-poor agenda includes participation and rights (economic, political, social and civil), as well as environment and commitment to women's development. The White Paper outlines how poverty elimination and allied attainable goals can be reached and how DFID will measure success in achieving them. This is an appropriately ambitious policy, in accordance with the DAC 21st Century Strategy. The DAC welcomes this new foundation for British development policies.

Coherence

The White Paper establishes the principles for coherent British policies concerning environment, trade, agriculture, investment, good government and human rights, debt relief, financial stability, drugs, migration, and cultural links. The mechanisms in the United Kingdom for dealing with coherence and internal co-ordination exist on several levels.
In Parliament, the new Select Committee on International Development will hold hearings and issue publications and recommendations on pertinent issues. The Secretary of State for International Development, besides being a Member of the Cabinet, sits on several Ministerial Committees including environment, drug abuse, women's issues, health, and export credits including arms sales. The agenda items on policy coherence include a number of sensitive issues and it is still too early to judge how successful the efforts towards these goals could be. (DFID's participation in considering arms export licence applications is a step towards better coherence in defence sales. The United Kingdom, as of September 1997, has already established a policy of providing export credits for heavily indebted poor countries on productive expenditure only.)

Within DFID the resources and mechanisms for seeking coherence and co-ordination both within the United Kingdom system and in international discussions and negotiations are being strengthened. A new unit has been created, focusing on trade, agriculture and investment. DFID's European Union Department pays special attention to the task of improving coherence and co-ordination with the European Community (EC). The Secretary of State for International Development will speak for the British Government on European Community issues in the area of international development. (The United Kingdom assumed the Presidency of the EC for six months from January 1998 just as negotiations on the post-Lomé Convention and the future development co-operation budget reach a critical stage.) The Secretary of State has been appointed as a Governor of the World Bank.

Poverty focus

While DFID is already an objectives-driven institution with a strong poverty elimination orientation, the elevation of the eradication of extreme poverty to be the new primary objective will involve some significant challenges. One of the central problems for the United Kingdom, as for many of its partners in the Development Assistance Committee (DAC), will be to identify and track impacts on poverty (differentiated by beneficiary) and other targets in the White Paper. Although the programme has been largely oriented towards the poorest developing countries, it will be necessary to generate more specific management information on poverty reduction than has been fed into the design of British projects and programmes and their evaluations up to now. A further implication is that multidisciplinarity in the area of poverty reduction will need to be even further developed within DFID among the six groups of professional advisors.

A number of actions are in train that are designed to improve poverty reduction performance and measurement of outputs, including:

new "rights-based" approaches, in accordance with the White Paper, to environment, natural resources, good government, social development, gender equality, population and health, and private sector, which promote the active role of poor people in their own development, as compared with approaches in which they are cast as passive beneficiaries;

a Performance Reporting Information System for Management (PRISM) adapted to the poverty agenda;

work to develop "organisational learning and networking" within and beyond DFID, such as the Health and Population Aid Effectiveness Project (HAPAE), and a new project to establish improved Social Development Systems for Co-ordinated Poverty Eradication (SCOPE), and associated information systems which will feed into the PRISM;

a formal evaluation of the poverty theme in British aid.

Aid effectiveness

DFID gives serious attention to the standards of "value for money" and the assessment of aid effectiveness. The DFID evaluation system, including reports and synthesis studies, is well developed, independent, and has the requisite feedback loops to operations and decision makers. An assessment in 1995, however, found that there was inadequate learning from the past. Three challenges for evaluation are to:

provide operations staff with timely and appropriate responses to the questions they face in the field;

DFID is working on these issues in a number of ways. The scheduled evaluation of the poverty theme should help to provide indications of how to approach the design, implementation and evaluation of poverty elimination strategies, projects and programmes. The Evaluation Department is also designing an advisory system for presenting evaluation and other material to operational staff in a relevant manner. To strengthen its guidance to NGOs on reporting, the Joint Funding Scheme (JFS) guidelines are under revision and DFID will be encouraging NGOs to measure progress against objectives.

Aid management

At the last Aid Review of the United Kingdom (February 1994) the Committee recognised the well-organised, business-like character of the British bilateral programme, drawing on substantial national expertise. DFID's staff of experts in social development, education, health/population, natural resources/research/environment and government institutions, has been built up in recent years in key fields related to the 21st Century Strategy. This positions DFID well to work towards the targets in the White Paper. For some years now, a key thrust in United Kingdom aid management has been to generate sustainable capacity development in its partner countries. Project design and approval systems, and staff selection and appraisal have been geared towards this objective.

DFID's decentralised system of management -- with strong development divisions and aid management offices in the field, operating with significant delegation of authority -- promotes dialogue with recipient countries and in building the partnerships necessary to effective development co-operation programmes.

The last DAC aid review was impressed by the internal procedures of DFID's predecessor agency, which consultants had evaluated against DAC principles. The system of Office Instructions has since been expanded and is a model of clarity, quality of guidance, and adherence to DAC principles. The Instructions will undoubtedly continue to evolve under the influence of the White Paper.

The quality of DFID's approaches to aid management (see Box 1) are evident in a number of areas, such as:

the role of defined objectives (aims) as the driving force in managing the whole department, and in particular, in programme design and performance monitoring;

the emphasis on information systems, facilitating this approach and underpinning DFID's decentralised system of management;

the concept of projects as locally-owned processes rather than donor designed blueprints;

the use of professional staff as advisers interacting in both headquarters and in the field;

the recruitment criteria and selection techniques for technical co-operation experts, adapted to the new development agenda and to their role as facilitators of local capacity development;

the Joint Funding Scheme (JFS) for funding NGOs and NGO mechanisms; and

the high quality of British Aid Statistics, one of the best published statistical records among DAC Members.

Two major aid management issues should be noted. According to present projections, the staff of DFID, already at an historical low [1 077 following the privatisation of the Natural Resources Institute (NRI) which represented one third of the staff of DFID], is projected to drop to below 1 000 in 1999-2000. If the United Kingdom starts on a course of increasing ODA volume in real terms, the question of staffing will need to be closely monitored to ensure that DFID has the staffing capacity needed to carry out the White Paper strategies.
The second issue concerns DFID's openness and the availability of information to the public, to recipients and to other donors. The last aid review observed that country strategy documents at that time were internal, so it was difficult to assess their full influence. NGOs found this incongruous since they were expected to propose projects in line with British strategy for a given country. A great deal of progress has since been made. For instance, Country Aid Programme Statements are now available outside of DFID. However, further progress in transparency and openness across a range of information would help to improve the partnership with recipient countries and aid co-ordination with other donors, all in the spirit of the White Paper. DFID's new communications and awareness strategy based on alliances with others in the development field -- private sector, trade unions and NGOs -- and the work by DFID in public education, should help to further improve the availability of information.

Private sector

The Secretary of State has made it clear that development of the private sector is an integral part of sustainable development. This is reflected in the White Paper. British policy will try to promote sound understanding of the partnership between well-governed states and a well-functioning market, which is essential to poverty elimination. There are several fields of action:

DFID's role in trying to ensure coherence of Britain's trade, environment, investment and export credit policies as they affect the private sector in developing countries;

DFID's work in good governance, capacity development for policy reform and improvement of the investor environment in partner countries;

capacity development for private sector associations and enterprises;

initiatives to promote small-scale enterprise, many of them handled by NGOs;

ensuring that trade and investment in poorer countries promote social responsibility and local development. This has a number of elements: fair labour standards, child labour laws, environmental concerns, socially responsible trading and investment, fiduciary duties, and possibly codes of conduct for ethical trading; and

the activities of the Commonwealth Development Corporation (CDC), a public corporation established in the 1940s, charged with the task of assisting overseas countries in the development of their economies by helping them to create long-term self-sustaining businesses.

The Government has announced that the CDC, (which in recent years has been entirely reliant for expansion on its own cash flow, and is currently even a net source of cash for the Government), is to be transformed into a government/private sector partnership. This introduction of private sector capital will enlarge the resources at CDC's disposal. Under the new ownership structure the CDC will have the challenge to carry through the objective set for it by the Government of providing leadership as an ethical and socially responsible investor in poorer countries. The proceeds from the sale of shares in CDC will be ploughed back into the aid programme. The essential mission of the CDC will be preserved and enhanced to spread viable business cultures and best practices to poorer developing regions. It has already begun divesting from more advanced markets in order to invest in riskier markets in poorer countries and is reviewing its portfolio and operations policies to be supportive of the White Paper.

Aid volume and budget

The White Paper affirms as British policy the United Nations (UN) target of 0.7 per cent of Gross national product (GNP). However, the financial ceilings already set for the next two fiscal years (1997/98 and 1998/99) produce no real growth and will remain unchanged. The British official development assistance (ODA)/GNP ratio was 0.27 per cent in 1996, the lowest point since 1990 (when it was at the same level). With disbursements of $3.2 billion in 1996 the United Kingdom was the sixth largest donor among DAC Member countries in absolute disbursements and the fourteenth rank in terms of ODA/GNP ratio. Disbursements in 1996 fell in real terms by 0.8 per cent.

As the White Paper strategy delivers progress towards the objective of eliminating poverty, and the comprehensive expenditure review assures that all resources are being used effectively in support of the new policy priorities, the Government believes that increased resources can be justified for the development assistance budget, from 1999/2000.
The challenge to DFID will be to identify, design and make commitments to absorb such increases for poverty-oriented projects and programmes. Since aid budgets are set on a disbursement basis, commitments will need to rise in the near term so that the poverty-oriented programme will be able to grow in a responsible manner as soon as the budget expands.

OECD Secretariat calculations show that whether the United Kingdom aims at reaching the average DAC country effort (0.40 per cent in 1996) or the 0.7 per cent target over a ten year period, the rise in ODA volume, while significant, would not be unprecedented in DAC history. Indeed a number of DAC Members have achieved similar increases in the past.

Procurement, untying and the Aid and Trade Provision (ATP)

The British aid system has well-defined procedures for procurement aimed at obtaining value for money. British procurement rules have become progressively more liberal with respect to untying with the introduction of a number of exceptions and derogations such as for procurement in the Special Programme of Assistance to Africa (SPA) which has recently become totally untied for local cost financing, and for items under £25 000. Statistical reporting on untying has not kept pace. Both the Secretariat and British authorities believe that their present statistics understate the amount of actual untying. The DAC is reviewing the reporting requirements on tying status to simplify and improve them.

An in-depth review of untying in 1996 concluded that unilateral untying of the aid programme would have very little effect on British exports, would increase competition for aid-funded contracts thus improving value for money in the aid programme, but would have only marginal impact on the British economy generally. Given the cost and bureaucracy involved in operating the present procurement system with its many exceptions, it can be asked whether the point has not been reached where on balance the costs outweigh the benefits. Completely untying the programme would not only be a helpful example for the donor community at little or no cost to United Kingdom exporters, it would also remove unnecessary bureaucracy and enhance the value for money of British aid. Moreover, British suppliers and industry have much greater interest in facilitating dynamic market-based development than in untying practices in the aid programme.

The Government has stated in the White Paper that while it will seek to develop further the use of local and regional skills and resources in assistance programmes, it will not otherwise unilaterally untie bilateral aid. It believes that concerted international effort is needed if there is to be effective progress in untying development assistance. British leadership in collective action towards the untying of aid would reflect the broader interest of all DAC Members in fostering well-functioning states and expanding market in developing countries.

The Aid and Trade Provision (ATP), under which mixed credits or soft loans have been provided for developmentally sound projects of industrial and commercial importance to the United Kingdom, represented in the range of 5 to 9 per cent of total bilateral disbursements between 1990-96. The DAC has commented on the ATP in past aid reviews, warning against the inherent risks in the manner of identification of projects and their processing under commercial time pressure. Further improvements in the appraisal, approval and monitoring of ATP projects have been made since the last aid review. The DAC's tied aid disciplines and OECD's Helsinki Rules, which ban tied aid for commercially viable projects which could be financed on market terms, have reduced the number of projects eligible for ATP financing. The UK authorities strongly support, and will seek to strengthen the Helsinki disciplines and the efforts to minimise support for unproductive expenditure in developing countries. As noted above, the Government has announced the closure of the ATP. The White Paper says that closing ATP does not preclude deploying development assistance in association with private finance, including in the form of mixed credits. To avoid past abuses, mixed credits will be managed within agreed country programmes and subject to the agreed strategy and sectoral focus for each country. This would have the primary aim of helping to reduce poverty rather than subsidising exports and the same procedures for quality control would be applied as for all other projects.

Main conclusions and recommendations

To summarise the main conclusions and recommendations:

The United Kingdom's new policies, with a focus on poverty elimination and a proactive approach to international efforts towards this goal, are very welcome. The White Paper provides a reference point for the whole British development effort, and in this regard has benefited greatly from the broad consultation process which contributed to its formulation.

The creation of DFID, with a broadened remit for international development, and the new emphasis in the White Paper on coherence of all British policies affecting development are promising steps. Progress on the policy coherence front will be of great interest to other DAC Members.

In focusing its efforts on the eradication of extreme poverty, DFID, like its DAC partners, will need to put an even stronger emphasis on differentiating the targets and outputs of its programmes with respect to their impact on the poor, on developing further its capacity to analyse and address poverty through multidisciplinary approaches, and on pursuing poverty-focused policy dialogue.

The British policy on ODA volume, which commits the United Kingdom to the long-term goal of 0.7 per cent of GNP, should be buttressed by a medium-term plan to move up in phases from the present 0.27 ODA/GNP ratio, allowing for effective planning and preparation of an expansion in the programme from 1999/2000.

Strong multidisciplinary skills and innovative aid management approaches make DFID one of the most professional and innovative aid agencies in either the bilateral or multilateral sectors, which will facilitate the attainment of the White Paper goals. The adequacy and quality of staffing of DFID will need to be watched to ensure that these assets are preserved and enhanced as the aid volume expands.

It will be also necessary to develop, together with aid partners, shared concepts and principles on pro-poor growth in order to achieve major impacts on extreme poverty. The United Kingdom has been making a significant contribution to international debate on development policies and to the instigation of collective action (e.g. in the area of debt reduction). The new Government's decision to maintain and broaden this effort on the international front is appreciated.

The United Kingdom has de facto gone a long way in untying its aid and the new Government has announced the closure of the ATP. British leadership in collective action toward the untying of aid would reflect the interest of all DAC Members and the broader British interest in fostering well-functioning states and markets in developing countries.